According to a Wall Street Journalreport tonight, "[t]he online-video service has been at odds with Verizon Communications Inc. and other broadband providers for months over how much Netflix streaming content they will carry without being paid additional fees. Now the long simmering conflict has heated up and is slowing Netflix, in particular, on Verizon's fiber-optic FiOS service, where Netflix says its average prime-time speeds dropped by 14 percent last month."

Further Reading

One possible interpretation of the above statement is that Verizon has been demanding direct payments from Netflix in exchange for carrying any video traffic beyond some numerical limit. That's probably not precisely what's happening, however, because the report says this particular dispute has been simmering for months—meaning it started before the court decision last month that overturned the Federal Communications Commission's net neutrality rules. Prior to that court decision, it would not have been legal for Verizon to refuse to carry Netflix traffic when its payment demands weren't met.

However, there are other ways Verizon can play hardball and affect Netflix performance. Netflix has been pushing ISPs to host its caching equipment within their data centers and to peer directly with the video provider—that is, exchange traffic without a third-party intermediary.

"Netflix wants broadband companies to hook up to its new video-distribution network without paying them fees for carrying its traffic," the Journal noted. "But the biggest US providers—Verizon, Comcast, Time Warner Cable, and AT&T Inc.—have resisted, insisting on compensation."

ISPs are under no obligation to accept Netflix's peering and caching offers. Teaming up with Netflix might improve performance for consumers, but not doing so isn't the same as refusing to carry traffic. If Verizon's network and its interconnections with third-party networks are strong, Netflix quality should be reasonably good.

The biggest problem is probably the same one we've seen in previous disputes: the connections between ISPs and the Internet bandwidth providers that Netflix pays to distribute its traffic to the rest of the Internet.

As we've reported before, those bandwidth providers, such as Cogent Communications, have traditionally exchanged traffic with consumer ISPs without money changing hands. But ISPs are using increases in Netflix traffic as justification to demand payment.

When negotiations stall, Verizon could put pressure on Cogent by delaying equipment upgrades needed to add capacity to links that have become congested. Cogent accused Verizon of doing just that last June, and it seems it may be happening again.

"People familiar with Cogent's and Netflix's thinking say the cable and telephone companies are delaying upgrading existing connections," the Journal reported. "Executives at major broadband providers, meanwhile, privately blame the traffic jam on Netflix's refusal to distribute its traffic more efficiently. ... Neither side is budging, people familiar with the matter said, leading to growing congestion."

The report noted that "Verizon has a policy of requiring payments from networks that dump more data into its pipes than they carry in return. 'When one party's getting all the benefit and the other's carrying all the cost, issues will arise,' said Craig Silliman, Verizon's head of public policy and government affairs."

Netflix traffic being sent from Cogent to consumer ISPs has reportedly increased in the months since Netflix started offering its so-called "Super HD" streams to all customers, rather than just customers of ISPs who have partnered with Netflix.

"Within the past four to six months, Netflix traffic through Cogent's connections to one major broadband provider has at least quadrupled, one person familiar with the matter said," the Journal reported.

Netflix declined to comment on financial disputes with Verizon.

Cogent told Ars that "this is a continuation of the same dispute" that we wrote about last June. A Verizon spokesperson called this latest news a "replay of the longstanding issue you guys covered a while back."

I can see both sides of this argument. The whole reason they're called "peering agreements" is because both sides are supposed to be peers, as in roughly equal. That means they're sending and receiving a roughly equal amount of traffic. That's obviously not the case here. On the flip side, ISPs need to make sure their customers are getting what they're paying for.

It's going to be tough for a while, and the only way I can see this getting resolved is Netflix paying up and passing the costs on to their subscribers. Net Neutrality doesn't enter the equation here.

No, no, no, no, no!

That argument had meaning only when the internet was young and business/academic based, not in the internet of the past ten years.

There _is_ balance. Verizon has ZERO content to offer to the rest of the internet, and the rest of the internet has everything that is desired by the Verizon customers. The balance is not one of byte-per-byte but one of supply-and-demand.